By Catey Hill, MarketWatch Aug. 7, 2014, 9:48 a.m. EDT
Buyers beware: The insanely high interest rates on some stores’ credit cards make the markups they add to merchandise look like child’s play.
According to a survey of 61 major retail credit cards released Thursday by CreditCards.com , a credit-card comparison website, retail credit cards are becoming increasingly bad deals for consumers. They have an average APR of 23.23% (compared with an average of just 15.03% for all credit cards), which is up from 21.22% in 2010. That means a consumer who spent $1,000 on the retail card, assuming an average retail card interest rate, and made only the minimum payments, would spend more than six years repaying that balance and end up paying a total of $1,840 for the $1,000 item. That is equivalent to an 84% markup — and it’s on top of the markup you already paid when you bought the merchandise to begin with.
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The rising rates may be due, in large part, to two factors — the fact that the 2009 Credit Card Act made stricter rules on fees that credit cards could charge consumers and that the industry wanted to make back some of the money it lost from this and from the hit it took financially during the recession, says Matt Schulz, a senior industry analyst for CreditCards.com. Furthermore, Schultz says that it’s likely that rates will keep rising as the Federal Reserve raises interest rates.
“A good retail credit card is hard to find,” says Charles Tran, the founder of credit card comparison site CreditDonkey.com . “Many store credit cards are skimpy on the benefits and loaded with high interest rates.”
Retail credit cards sometimes do have benefits that might be worth it to consumers who shop at the store often and pay off the balance in full and on time each month. Many come with perks like discounts, special sales or rewards for cardholders, as well as introductory 0% offers (these make financial sense if you pay off your balance in full before the intro periods end). For example, the Nordstrom JWN -1.07% card lets cardholders earn two points for each dollar spent at Nordstrom, Nordstrom.com and Nordstrom Rack (and on some days triple points), offers early access to some sales, alteration reimbursements, and more — which, for people who shop often at Nordstrom, and pay off their bill on time, might be worth it. Plus, there are cards with low rates like the OfficeMax ODP -0.20% card, which has an interest rate of just 9.99% for the most credit-worthy borrowers.
But miss a payment one month and you’ll be in trouble on most retail credit cards. And for some cards, that trouble is costlier than others. Here are five of the costliest retail credit cards for consumers, according to the CreditCards.com survey.
1. Zales , up to a 28.99% APR
2. Office Depot Personal Credit , up to a 27.99% APR
3. Staples Personal Account SPLS -2.36% , up to a 27.99% APR
4. My Best Buy BBY -1.83% , up to a 25.24% and 27.99% APR, depending on your credit score
5. My Best Buy Preferred , up to a 25.24% and 27.99% APR, depending on your credit score
Bottom line: In general, retail credit cards are a bad idea for anyone who doesn’t pay their balance on time and in full, because the interest rates tend to be so high, and for people who don’t shop at the store very often and thus likely won’t take advantage of the card perks.
Even for those who do pay their balance on time and in full, it may be more lucrative to use a cash-back card, where you earn cash that you can deposit right into your bank account rather than rewards you must use at the store, says Schultz.